Futures Slide Amid Renewed Tech Selling, Geopolitical Chaos Ahead Of Key CPI Print

Markets continue to trade with a risk-off bias this morning, with equity futures and macro credit weaker, rates selling across the curve, as the USD and oil sensitive currencies outperform. It’s set to be another ugly day for US tech stocks as US equity futures slide ahead of today's CPI print which will see headline inflation rise above 4% for the first time in 3 years (full preview here). As of 8:00am Nasdaq 100 futures are down 1.5% versus losses of 1.0% for the S&P 500 contracts. Pre-market, Mag 7 are all lower with NVDA (-1.9%), TSLA (-1.6%) and MSFT (-1.3%) being the biggest underperformers. Oracle trades lower by 2.8% in the premarket ahead of its after-hours earnings, which could provide the next catalyst for the AI trade. Bond yields are 1-2bp higher across the curve amid hotter-than-expected Japan PPI print last night. Commodities are mixed: oil swung from losses to gains after Trump said Iran “will have to pay the price” for taking too long to negotiate a deal. The threat followed a round of retaliatory attacks between the two sides, with Tehran saying it’s reviewing the diplomatic process. Brent rose 1.7% to around $93 a barrel. Treasury yields climbed across the curve, with the 10-year rate up three basis points to 4.54%. The dollar held steady; precious metals are all lower. Geopolitical headlines remain volatile - Trump warning that "Iran will have to pay the price for taking too long" and threatening he is close to ordering new strikes - but this was unlikely to have triggered the rotation given 1) Oil & Rates traded lower yesterday; 2) Tech has been the escalation trade. US economic data calendar includes May CPI (8:30am) and federal budget balance (2pm)

In premarket trading, Nvidia falls 2.4%, leading decliners among Magnificent Seven stocks, with technology and semiconductor firms set to extend losses (Apple -0.1%, Amazon -0.6%, Meta -0.9%, Alphabet -1.3%, Microsoft -1.5%, Tesla -1.7%)

Casey’s General Stores Inc. (CASY) is up 2% after the convenience store chain reported revenue for the fourth quarter that beat the average analyst estimate.
Chewy (CHWY) climbs 7% after the pet food posted first quarter results.
Cracker Barrel (CBRL) jumps 9% after the restaurant chain boosted its revenue guidance for the full year, beating the average analyst estimate.
Devon Energy (DVN) rises about 1% after the oil and gas producer boosted its production forecast for the full year and said it was undergoing a portfolio review to concentrate assets in the Permian Basin.
Dianthus Therapeutics (DNTH) slumps 19% after peer developer Sanofi halted a late-stage trial of an experimental therapy for a rare autoimmune disorder, citing efficacy concerns.
Hinge Health (HNGE) climbs 3% after the digital health-care company raised its revenue forecast for the full year.
Old Dominion (ODFL) slumps 7%, falling with other less-than-truckload stocks, after Amazon expanded its LTL freight offering to all destinations in the US, including third-party warehouses, distribution centers and retail partners.
Super Micro Computer (SMCI) falls 11% after the company said it plans $7 billion in equity and equity-linked financing transactions to fund component purchases to satisfy around $39b in AI server orders it has received from customers.

In corporate news, SoftBank’s talks with potential creditors to raise at least $6 billion from a margin loan backed by its OpenAI stake is said to have stalled. TSMC reported a 30% rise in May monthly sales. Combined April and May sales up around 24% from a year ago, with analysts looking for 35% increase in total second-quarter sales.

Tuesday’s volatile session was encapsulated in a double-digit swing in the benchmark semis index as broader equity financing costs rose. S&P 500 options have witnessed the two busiest days on record, both within the past week. For markets to settle, we might need a “solution in the Middle East and a SpaceX IPO which goes well enough to signal that the market has confidence, but not good enough to raise animal spirits among investors,” according to Stephan Kemper, chief investment strategist at BNP Paribas Wealth Management. SpaceX’s IPO is set to price Thursday and trade the following day. The near-$75 billion offering has attracted demand from institutional investors for several times the shares available.

“Clearly, the AI-linked theme is seeing some unwind,” said Andrea Gabellone, head of global equities at KBC Securities. “It’s not structural, just temporary rotation away from high momentum names, and perhaps also linked to the several high-profile IPOs that are coming up.”

“We currently see a healthy correction in parts of the market which might have moved too far, too fast,” said Stephan Kemper, chief investment strategist at BNP Paribas Wealth Management. “There’s also no trigger to further upgrade earnings expectations. We have a fair chance that the current choppy trading environment will stay in place for some time.”

Oil swung from losses to gains after US President Donald Trump said Iran “will have to pay the price” for taking too long to negotiate a deal. The threat followed a round of retaliatory attacks between the two sides, with Tehran saying it’s reviewing the diplomatic process. Brent rose 1.7% to around $93 a barrel. Treasury yields climbed across the curve, with the 10-year rate up three basis points to 4.54%. The dollar held steady.

Jim Reid, head of Macro Research at Deutsche Bank, describes markets as “swinging between 1999-style AI exuberance and 2000-type tech crash fears.” A volatile CPI print might keep the pattern going, although isn’t expected. Bloomberg Economics’ US team thinks the headline reading will likely be hot, but core inflation subdued and more reassuring, potentially challenging the 25-bps rate hike later this year priced in by the swaps market.

For now, the focus will be on Wednesday’s consumer price data for May (full preview here), which may offer the clearest signal yet on whether a Fed led by Kevin Warsh will keep borrowing costs higher for longer. The median analyst consensus expects annual inflation to accelerate to 4.2% in May, the highest since April 2023, from 3.8% a month earlier. Core inflation, which excludes food and energy, is projected to edge up to 2.9% from 2.8%. A $39 billion auction of 10-year Treasuries will also test demand at a time of steadily rising yields. The JPMorgan Market Intelligence desk says options are pricing in approximately 1% move in the S&P 500 on the most likely core CPI MoM print, while an upside shock above 0.35% could result in the benchmark falling by as much as 3%.

“With US CPI the key event risk today, bonds and equities are likely to take direction together. Consensus forecasts imply inflation is unlikely to return anywhere close to target, leaving a high bar for markets to price a materially more dovish Fed", said Skylar Montgomery Koning, Bloomberg macro strategist.

“Not only are we oscillating between deal or no deal with the US and Iran, but markets are also swinging between 1999-style AI exuberance and 2000-type tech crash fears,” noted Jim Reid at Deutsche Bank AG. “All we need now is a volatile US CPI print today to keep the pattern going.”

Elsewhere, Bank of Japan Governor Kazuo Ueda has been hospitalized and is set to miss the monetary policy meeting next week, according to a statement. Investors are currently betting that the BOJ needs to raise rates soon to combat inflation and curb the yen’s weakness.

In other assets, gold hits the lowest price since November, behaving more like a risk asset over the short term than a haven, setting the metal up to test $4,000 an ounce, around where key retracements lie. And Bitcoin renewed its slide having endured its worst week since the collapse of FTX exchange in 2022.

In politics, Aaron Ford, Nevada’s attorney general, has prevailed over a crowded field of Democrats to face off against Governor Joe Lombardo, a Republican, in the gubernatorial election. Trump says Bill Pulte will take over as acting Director of National Intelligence on June 19.

European stocks started off on a mildly positive footing before succumbing to the selling pressure in global equities, with the Stoxx 600 down 0.2%. Here are the biggest movers Wednesday:

STMicro gains as much as 3.4% after Bank of America said its shares have nearly 40% further to climb on optimism that a growing need for chips used to support communications and power management in data centers will boost earnings
Auto1 shares rise as much as 4.9%, as Goldman Sachs expects capital markets day to support valuation re-rating, seeing 58% upside ahead; believes company will detail uni economics and long-term margin building blocks at the CMD
EnQuest shares gain as much as 24%, to their highest level since early 2023, after the oil and gas company agreed to buy Malaysian assets for up to $833 million
Fuller Smith & Turner advances as much as 12%, the most since Nov. 2023, following an update from the pub operator in which it delivered a full-year beat and announced a new share buyback
Fielmann rises as much as 7.7%, the most since mid-February, as Deutsche Bank initiates coverage of the German eye wear company with a buy recommendation, saying it has a “credible foundation for the next strategic phase”
Scandi Standard gains as much as 5.2% after SB1 Markets initiated coverage of the Swedish poultry producer with a buy rating, noting the company’s strong market position and potential for continued margin improvement
WH Smith shares fell as much as 19%, the biggest drop since August 2025, after the retailer cut its full-year profit forecast following a sharp deterioration in US trading and set out plans to raise capital
Soitec shares drop as much as 12% after Jefferies cut their recommendation on the semiconductors materials producer to underperform from hold. Analysts said the stock’s valuation doesn’t reflect fundamentals
Kongsberg shares fall as much as 4.7% after the Norwegian firm’s targets came up short of analysts’ margin forecasts, with Morgan Stanley saying the lack of consensus earnings upgrades should call into question the stock’s premium valuation
Pennon Group shares fall as much as 4.8%, the most in a month, after the water company lowered EPS guidance for its 2027 financial year. Analysts said that the outlook disappoints the market

Asian stocks resumed their decline, weighed by technology firms, as sentiment soured on renewed tensions in the Middle East. The MSCI Asia Pacific Index fell as much as 2.7%, with chipmakers Samsung and SK Hynix the biggest drags. Tech-heavy markets led losses in the region, with South Korea’s Kospi tumbling 4.5% and Taiwanese shares falling by more than 3%. Indonesian stocks extended gains to as much as 3.4%, spurred by the central bank’s off-cycle interest rate hike.

“We don’t think this is a bubble yet,” but could be the early innings of a bubble forming, Jeff Li, global equity CIO at E Fund Management, said in a Bloomberg TV interview. Investors may position themselves at the point of supply that’s suffering from the most severe shortage, which is CPU and optics communications this year, he added.

In FX, The Norwegian krone sits on top of the G-10 leaderboard after hot inflation data. USD/JPY has hit its highest level since April 30, when Japanese authorities intervened in the currency. Spot gold and silver have continued to decline, each down about 2%. Bitcoin falls 1.8% but holding above the $61,000 mark.

In rates, treasury futures fall to session lows as oil prices jump after US President Trump in social media post said Iran has taken too long to come to terms and will “pay the price.” US yields climbed 2bp-3bp across the curve to day’s highs. US 10-year yields rose as much as 3.4bp to 4.55%, remaining inside Tuesday’s range, before stabilizing under 4.54%; bunds and gilts in the sector lag by around 1.5bp. Curve spreads remain within a basis point of Tuesday’s closing levels. Treasury auction cycle continues with $39 billion 10-year note reopening at 1pm New York time; Tuesday’s 3-year new-issue auction tailed by 0.3bp. Cycle concludes with $22 billion 30-year reopening Thursday. WI 10-year yield near 4.54% is ~7bp cheaper than last month’s new-issue auction, which tailed by 0.4bp. IG dollar issuance slate includes a couple of offerings, led by an EIB $4 billion 7Y, but is expected to be muted by CPI release. Eight borrowers priced almost $8 billion on Tuesday, paying about 5bp in new issue concessions on deals that were 2.7 times covered. Focal points of US session include May CPI data and 10-year note auction.

In commodities, WTI crude oil futures, little changed before Trump’s comment, rose as much as 2% afterward and remain higher by about 1.2%, weighing on Treasuries and S&P 500 futures, down around 1%

US economic data calendar includes May CPI (8:30am) and federal budget balance (2pm)

Market Snapshot

Top Overnight News

Trump slammed Iran for not reaching a quick peace deal with the US after a night of attacks that have strained a fragile two-month truce. “They’ve taken too long to negotiate a deal that would have been great for them, now they will have to pay the price,” Trump wrote on Truth Social
Trump still thinks a peace deal with Iran is on the horizon, even as the United States launched retaliatory strikes on Iran Tuesday evening, a senior White House official said Tuesday. Politico
It would be "unwise" to assume that the situation in the Strait of Hormuz will return to how it was before the Iran war, the head of French shipping group CMA ‌CGM said on Tuesday. CMA CGM, the world's third-largest container line, is among firms with vessels stranded inside the Gulf since the start of the conflict that has virtually closed the waterway, which carries a fifth of global oil and LNG supply. RTRS
US House passes USD 70bln immigration enforcement funding bill.
US Agriculture Secretary Rollins said the first US calf with screwworm is healthy and recovering, while she said they will start eradicating screwworm in a couple of months.
China’s consumer inflation unexpectedly stalled in May even as factory prices gained at the fastest pace in almost four years. BBG
China’s factory-gate inflation accelerated in May as the ongoing conflict in the Middle East continued to drive up energy and commodity costs. The producer-price index jumped 3.9% from a year earlier in May, accelerating from a 2.8% increase in April, according to data released Wednesday by the National Bureau of Statistics. WSJ
Japan’s corporate goods prices jumped again in May, signaling strengthening inflationary pressures rippling across domestic supply chains as the war in Iran drags on and keeps energy prices elevated. BBG
Governments have raised a record $504 billion through syndicated bond sales in the first half so far, surpassing even pandemic-era borrowing as deficits widen and spending climbs. BBG
US markets are close to ending more than two decades of declining equity supply as a trio of mega initial public offerings brings a flood of new shares. FT
We expect a 0.17% increase in May core CPI (vs. +0.3% consensus), corresponding to a year-over-year rate of +2.79% (vs. +2.9% consensus). We expect a 0.45% increase in headline CPI (vs. +0.5% consensus), reflecting sharply higher energy prices. Our forecast is consistent with a 0.27% increase in core PCE in May, reflecting a large increase in its financial services component. GIR
SK Hynix plans to list its shares in ‌the U.S. as soon as August, said two sources familiar with the matter, as the South Korean memory chipmaker seeks to capitalize on strong appetite for AI-linked stocks and broaden its investor base. RTRS

Top Iran Headlines

The US and Iran exchanged fire following the downing of a US Apache helicopter over the Strait of Hormuz. Iran's IRGC struck a US base in Jordan and 21 other targets in the Gulf, after the US hit Iranian air defence, ground control stations and surveillance radar sites near Hormuz. Sounds of explosions were reported in Qeshm Island and the port city of Sirik, while explosions were heard near Bandar Abbas and Jask. Following the initial exchange of missiles, US CENTCOM announced in the early hours of Wednesday that they have ended its self-defence strikes against Iran.
US President Trump told ABC that the US was responding to Iran and that it is important to respond to Iran downing the helicopter, as well as noted that the response is very strong and powerful.
US VP JD Vance said the US is very close to reaching a deal that would address Iran's nuclear programme for the long term, which could come next week or months from now, but absolutely before the midterms, according to CBS.
White House senior official said nothing has changed in their position regarding an agreement with Iran and it is still close despite the strikes.
A US official said the US military carried out strikes on almost 20 targets inside of Iran, but noted preliminary assessments indicate most Iranian missiles and drones were successfully intercepted.
Iranian Foreign Ministry spokesperson Baghaei said they need to reassess, following the overnight clashes, when questioned on talks with the US, SNN reported.
Iranian Foreign Ministry statement strongly condemns America's crime in its military aggression against Iran.
An Iranian military source tells IRIB that no offensive military operations have been conducted in the Strait of Hormuz over the past 24 hours. Warned that if the enemy carries out another hostile action under the pretext of the military helicopter crash, it will face a decisive response.
A massive fire in the centre of Erbil and an explosion has been heard near the US base in the vicinity, Mehr news reported citing sources.
Local sources reported that an explosion was heard in the area of Qeshm city, Mehr News reports. However, this was later denied by the Qeshm governor.
UN Security Council debated reviving the Iran sanctions panel, although Russia and China opposed the revival of the Iran sanctions committee, according to Tasnim.
Israeli air raids hit the Lebanese towns of Touline, Srifa and Kafra. It was separately reported that missiles were spotted from Lebanon that were headed towards Kiryat Shmona and its surroundings, while rockets launched from Lebanon towards Upper Galilee were also detected.
UKMTO has received a report of an incident 20nm Northeast of Oman’s Sohar.
UKMTO reported an incident involving a cargo vessel 88 nautical miles southwest of Balhaf, Yemen.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks mostly declined following the tech weakness on Wall St and amid the escalation in the Middle East after the US conducted strikes on Iran in response to the downing of an Apache helicopter, while Iran retaliated with strikes targeting US bases in the region. ASX 200 bucked the trend amid gains in the consumer sectors, financials and defensives. Nikkei 225 retreated amid tech-related headwinds, while firmer-than-expected PPI data and the latest BoJ source report continued to point to a looming hike for next week's meeting. Hang Seng and Shanghai Comp conformed to the downbeat mood in the region owing to the recent geopolitical escalation. Elsewhere, Chinese inflation data was mixed as CPI Y/Y printed softer-than-expected, but PPI Y/Y topped forecasts and printed its highest since July 2022.

Top Asian News

Chinese CPI YY (May) 1.2% vs. Exp. 1.3% (Prev. 1.2%).
Chinese PPI YY (May) 3.9% vs. Exp. 3.8% (Prev. 2.8%).
Japanese PPI MM (May) 0.9% vs. Exp. 0.5% (Prev. 2.3%).
Japanese PPI YY (May) 6.3% vs. Exp. 5.5% (Prev. 4.9%).

European bourses (STOXX 600 -0.2%) initially opened with mild gains, before dipping into the red as the morning progressed – currently at lows. In Tuesday's session, US President Trump vowed retaliation after the downing of a US Apache helicopter, resulting in US forces targeting Iranian air defences, ground control stations and surveillance radar sites around the Strait of Hormuz. In response, Iran's IRGC said they carried out attacks against a US base in Jordan and 21 other targets around the Gulf. European sectors are mixed. Topping the sector pile is Real Estate (+0.6%), with Optimised Personal Care (+0.4%) and Food, Beverages & Tobacco (+0.5%) rounding out the top three. Underperformance in Financial Services (-0.8%), Basic Resources (-1.2%) and Technology (-0.9%).

Top European News

Germany's DIW cuts its 2026 growth forecast for Germany to 0.5% (prev. 1.0%); Germany risks slipping into a technical recession this year following the energy shock.
European Parliament's budgetary control committees are to examine the Commissions plan to unlock EUR 16bln of funding for Hungary on the 14th of July, Politico reported citing sources.

G10s mostly range trading as the Buck positions into US CPI; CAD outperforms into BoC, antipodeans lag after soft Chinese inflation data, NOK outperforms post-CPI.
DXY -0.1%, lower on the day but still holding onto most NFP gains despite a sharp reversal in crude over the past few days. Levels reached around NFP, just above the 100 mark, will be watched closely as an inline/hot CPI print will help the index return to these levels. MUFG suggests that a hot print CPI (>4.3%) would likely trigger a sharp sell-off in US front-end rates, potentially pulling forward expectations for a hike towards October. ING contends a soft print would see DXY test the 99.50/60 area.
CAD is one of the best performers ahead of the BoC confab, USD/CAD -0.1%. BoC is widely expected to leave its policy rate unchanged at 2.25% for a fifth consecutive meeting as it balances trade uncertainty against lingering inflation risks. Attention will centre on whether policymakers are more attentive to inflation or growth risks. Markets will also be watching for acknowledgement of Canada's technical recession, alongside any emphasis on the apparent Q2 recovery, stable core inflation and the Bank's position near the lower end of neutral as justification for maintaining a wait-and-see approach. USD/CAD could look to test 1.40 if US CPI comes hot, and BoC does not provide food for hawks.
NOK is the best G10 performer after hot CPI-ATE this morning surpassed consensus and was mildly above the Norges Bank's own forecast of 3.3%. Sell-side banks saw some risk that a hot inflation report could see board members begin to mull another hike at the June meeting. However, it is more likely that policymakers wait for more data and assess the developments in the Middle East. Nonetheless, CPI-ATE remains persistently high, which clouds the environment. NOK/SEK +0.4%, looks to test par after surpassing the level overnight.
Antipodeans underperform after Chinese inflation printed cooler than expected. CPI was steady at 1.2% Y/Y, cooler than economists had expected. PPI rose to 3.9%, lower than most estimates. As such, both Aussie and Kiwi weaker against the Buck by 0.2% and 0.1% respectively.

Fixed Income

Global fixed benchmarks are trading tentatively on either side of the unchanged mark, following similar indecisive action in the energy space. This follows on from overnight US strikes on Iran, in response to the downing of a US helicopter earlier in the week. This latest attack led Iran to launch retaliatory strikes against Bahrain, Kuwait and Jordan. As for the progress to peace, a WH official stated that “nothing has changed in their position regarding an agreement with Iran, and it is still close despite the strikes”. However, the Iranian Foreign Minister stated that they need to reassess, following the recent strikes; he added that the US harms diplomatic efforts.
USTs (-2 ticks) trade with very mild losses and hold towards the bottom of a 109-03 to 109-08 range. The tentative action today is explained by the uncertain geopolitical environment, and as markets await US CPI/10yr auction later today.
Bunds (-9 ticks) and Gilts (-6 ticks) trade incrementally lower, following the tentative action seen above. Domestic updates today have been lacking, but focus for the EGBs will be on a 10yr Bund auction. As it stands, the GE 10yr yield holds slightly above the 3% mark, driven higher by elevated energy prices and sticky inflation. The sale should go well, with some traders potentially booking profits at elevated levels. The geopolitical environment appears to be easing (but remains incredibly uncertain), and with some fund managers believing fixed income will reclaim its safe-haven status, yields should begin to ease from recent peaks.
Germany to sell EUR 3.982bln vs exp. 5bln 2036 2.90% Bund: b/c 1.71x (prev. 1.5x), average yield 3.06% (prev. 3.16%), retention 20.4% (prev. 23.1%).
Japan sells JPY 450.8bln 30-yr JGBs; b/c 2.94x (prev. 3.49x), and average yield 3.860% (prev. 3.842%), Lowest accepted price 97.40 vs prev. 97.80, Average accepted price 97.78 vs prev. 98.02, Tail in price 0.38 vs prev. 0.22.
Australia sells AUD 1bln 1.00% October 2037 bonds b/c 4.25, avg yield 4.9566%.

Commodities

In geopolitics, The US and Iran exchanged fire following the downing of a US Apache helicopter over the Strait of Hormuz. Iran's IRGC struck a US base in Jordan and 21 other targets in the Gulf, after the US hit Iranian air defence, ground control stations and surveillance radar sites near Hormuz. Sounds of explosions were reported in Qeshm Island and the port city of Sirik, while explosions were heard near Bandar Abbas and Jask. Following the initial exchange of missiles, US CENTCOM announced in the early hours of Wednesday that they have ended its self-defence strikes against Iran.
Crude futures trade around the unchanged mark despite the US-Iran strikes. WTI Jul'26 oscillates in a USD 87.39-90.00/bbl range while Brent Aug'26 rotates in a USD 90.77-93.26/bbl band. Saxo's chief investment strategist says, "Geopolitics is being treated as a headline risk, not a macro shock for now. Oil holding around USD 90 despite fresh Iran headlines suggests markets are not pricing a sustained supply disruption."
Precious metals continue to trade under pressure. Spot gold slips below the USD 4200/oz handle, at the lower end of its USD 4161-4258/oz range. The yellow metal has been under pressure in recent sessions, which was initially spurred by the stronger-than-expected US jobs report last Friday. The US inflation print at 13:30BST/08:30EDT will be a highly-watched data point for metals traders, another hot print could spur further downside. The next level below market is the USD 4099/oz low from March 23rd.
3M LME Copper traded rangebound throughout the Asia-Pac session but is currently extending to lows, slipping below the USD 13.5k/t mark. Chinese inflation failed to move the red metal, after headline inflation held at 1.2% Y/Y but was cooler than the expected 1.3%.
US Private Inventory Data (bbls): Crude -9.1mln (exp. -3.4mln), Distillates +1.3mln (exp. -0.2mln), Gasoline -1.2mln (exp. -0.6mln), Cushing -1.1mln.
US Deputy Secretary of State Landau said the US is working to release energy reserves and boost sales of LPG and LNG to ASEAN.
Kuwait is reportedly in discussions with Saudi Arabia and the UAE to secure pipeline capacity to export crude and oil products, Argus reported.

Central Banks

BoJ Governor Ueda said to have been hospitalised, reports suggest, and is expected to be absent for the June 15-16 meeting. Deputy Gov. Himino will chair June meeting.

Ukraine

Ukrainian President Zelensky confirmed that the targeted the Russian Novokuibyshevsk refinery.
Ukraine hit two Russian pumping stations; namely, Vtorovo and Lobkovo.

US Event Calendar

7:00 am: Jun 5 MBA Mortgage Applications 10.8%, prior -2.5%
8:30 am: May CPI MoM, est. 0.5%, prior 0.6%
8:30 am: May Core CPI MoM, est. 0.3%, prior 0.4%
8:30 am: May CPI YoY, est. 4.2%, prior 3.8%
8:30 am: May Core CPI YoY, est. 2.9%, prior 2.8%
2:00 pm: May Federal Budget Balance, est. -283.1b, prior 215.02b

DB's Jim Reid concludes the overnight wrap

After writing thousands of EMRs without an ocean or sea view, I've now had three in a single month. After the US West Coast and Lisbon in May, I'm writing this looking out from my balcony over the beautiful Bosphorus Strait here in Istanbul. I'm writing in Europe, but looking out across the strait at Asia — a first for me.

As I straddle two continents, markets are straddling some fairly extreme scenarios at the moment. Not only are we oscillating between deal or no deal with the US and Iran, but markets are also swinging between 1999-style AI exuberance and 2000-type tech crash fears. On the former, Brent briefly fell below $90 for the first time since April 17th yesterday before partially rebounding after Trump vowed retaliation following Iran shooting down a US helicopter. On the latter, the Philly Semiconductor Index fell by as much as -8.62% intra-day before recovering to -1.93% by the close. So it’s been a genuinely topsy turvy start to the week, with oil and tech whipsawing across both Monday and Tuesday. All we need now is a volatile US CPI print today to keep the pattern going.

Over the past 24 hours, the conflict between the US and Iran has escalated again following American strikes launched in direct response to the downing of a US Army Apache helicopter over the Strait of Hormuz. Late on Tuesday, US Central Command said its forces carried out what it described as a “proportional response to unjustified Iranian aggression,” striking Iranian air-defence systems, ground control stations and surveillance radar sites near the strait using precision munitions from fighter jets. President Donald Trump, speaking to ABC News as the strikes were announced, said the action was necessary after the helicopter incident, adding: “I believe the response should be very strong, very powerful, and that’s what this one is.” Iranian media reported explosions across southern Iran, including on Qeshm Island and in the Bandar Abbas region, while state television said two water-storage tanks in Sirik were hit, temporarily cutting local drinking water supplies.

Tehran has denied responsibility for shooting down the helicopter, although Iranian officials issued sharp warnings following the US operation. Foreign Minister Abbas Araghchi said that Iran “will leave no attack or threat unanswered,” while also cautioning earlier that foreign forces operating near Iranian territory are at constant risk of “human errors, plain accidents, or potentially being caught in crossfire.” Iran’s joint military command claimed it had targeted several US bases in the region, with the Islamic Revolutionary Guard Corps saying it launched a drone strike at the US Fifth Fleet in Bahrain, according to state-run IRIB. The exchange has underscored the fragility of the April ceasefire and cast fresh doubt over President Trump’s repeated assertions that a broader peace deal was close.

Brent is still over a dollar lower than it was this time yesterday but is up around +0.5% overnight to $91.90 but having been as low as $89.70 before news of the helicopter downing emerged an hour or so before the European close.

This news came as US equities were in the midst of a pronounced tech-led sell-off and added to the risk-off mood. However, there wasn’t an obvious catalyst for that tech sell-off and with there being no follow up to Trump’s post during market hours, equities ended up largely reversing their losses by the close. So the S&P 500 closed a modest -0.26% lower after trading -2.27% intra-day, while the NASDAQ "only" fell -0.97% on the day. We did see underperformance by the Mag-7 (-1.29%) as well as the Philly semiconductor index (-1.93%) but this was much less severe than it had been midway through the session (intra-day lows of -8.62%) as we mentioned at the top. And the picture was actually positive beyond tech, with almost three-quarters of the S&P 500’s constituents up on the day and the equal-weighted index rallying +0.76% amid rotation into more defensive sectors. This morning, S&P 500 (-0.28%) and NASDAQ 100 (-0.45%) futures are a bit lower.

A notable feature of yesterday’s selloff was that unlike Friday, it didn’t coincide with a big hawkish repricing given that oil was still lower on the day even with the turnaround after Trump's comments on the helicopter incident. If anything, investors were becoming more optimistic on inflation, as earlier hopes for a US-Iran deal saw oil prices fall back again. So even though we were off the lows for the day, Brent crude (-2.97%) still closed at $91.45/bbl, which was its lowest level since mid-April, whilst the 6-month Brent future (-1.61%) closed at $84.58/bbl.
Those moves came as investors latched onto comments from President Trump, which came out shortly before we went to press yesterday, in the small hours of Tuesday. He said that “We’re in the final throes of what will be a very, very good deal”, and that “We could have at least an idea one or two days from now.” So that raised hopes that some kind of deal might be imminent, and that the Strait of Hormuz might reopen in the weeks ahead. And while Trump’s helicopter post added fresh doubts, it didn’t entirely derail the optimism. Later in the day, the New York Times report some of the details of US-Iran negotiations towards an outline of a nuclear agreement, which added hopes that we could get something more than a narrow temporary deal to reopen Hormuz that was reportedly in play late last month.

Inflation is set to remain in the headlines today, as we have the US CPI print for May at 13:30 London time. This is an important one, because recent weeks have seen mounting speculation about a Fed rate hike. That was initially driven by the energy shock pushing inflation up, but we’ve now had 3 consecutive jobs reports surprise on the upside too, with the 3-month average for payrolls at a two-year high of 188k. So the labour market side of the Fed’s mandate seems increasingly secure, giving them much more space to focus on the inflation side.

In terms of what to expect today, our US economists think that monthly headline CPI should come in at +0.51%, which would push the year-on-year measure up to +4.3%. And if that’s realised, it would be the first 4%-plus reading for CPI since 2023, back when the Fed were still hiking rates. They see that driven by a large increase in gas prices, so for core CPI they’re expecting a slower +0.22% pace, which would push the year-on-year core measure up to +2.9%. Nevertheless, we know that markets are attuned to hawkish risk after the reaction on Friday, so an upside surprise could cause trouble given how febrile markets have been recently.

Ahead of the CPI print, lower oil prices helped to ease inflation fears on both sides of the Atlantic. So the US 1yr inflation swap (-3.9bps) fell to 3.03%, and the Euro 1yr inflation swap (-5.6bps) fell to its lowest in almost 3 months, at 2.93%. Meanwhile, with inflation concern easing, investors also dialled back their expectations for a hawkish reaction. For example, the amount of Fed hikes priced by December fell -3.4bps on the day to 25bps.

With that in mind, sovereign bond yields also fell back on both sides of the Atlantic. So in the US, the 2yr Treasury yield (-4.5bps) fell to 4.12%, whilst the 10yr Treasury yield (-4.6bps) fell to 4.52%. And over in Europe, yields on 10yr bunds (-1.7bps), OATs (-2.9bps) and BTPs (-3.5bps) all fell back as well.

Speaking of Europe, equities there were also hit by the sudden selloff, with the STOXX 600 (-0.50%) falling for a 3rd consecutive session, whilst the DAX (-0.74%) was back into negative territory for 2026. This performance wasn’t helped by European markets closing before the recovery in US equities emerged, though the more limited exposure to both chips and the broader tech sector meant that the CAC 40 (+0.05%) and the FTSE MIB (+0.11%) posted modest advances.

Finally, there wasn’t much data yesterday, although we did get a few US releases. That included the NFIB’s small business optimism index, which fell to 95.3 in May (vs. 96.0 expected), marking its lowest level since October 2024. However, there were some stronger numbers, with existing home sales up to an annualised pace of 4.17m in May (vs. 4.07m expected), their highest in 5 months.

Asian equity markets are trading lower as I type with the KOSPI leading regional declines, down -4.20%, while the Nikkei is also weaker (-1.43%) amid continued pressure on AI related stocks. Other major indices are similarly in negative territory, including the Hang Seng (-1.15%), CSI (-0.98%) and Shanghai Composite (-0.58%). Meanwhile, 10 year US Treasuries are +2.2bps higher at 4.54% as we go to print.

Elsewhere, the Japanese yen (-0.02%) is hovering close to its weakest level since April, keeping markets alert to the risk of potential intervention by Japanese authorities.

Early economic data from China showed consumer inflation in May coming in slightly below expectations, highlighting subdued domestic demand. Headline CPI rose +1.2% year on year, marginally under the +1.3% consensus and unchanged from the previous month. By contrast, producer prices accelerated sharply, with PPI up +3.9% year on year, in line with expectations and the strongest reading since August 2022. The pickup was largely driven by higher energy costs linked to developments in the Middle East, marking a notable acceleration from April’s +2.8% pace.

Looking at the day ahead, there’s not too much on the calendar, although we will get the US CPI print for May, and a policy decision from the Bank of Canada. No move is expected.

Today's Top Stories